Tag Archives: Microsoft

There are so many mergers happening today you need an app just to keep up with them. What interests me the most about these mergers is whether they are due to typical consolidation, arbitrage, a company having too much cash, or whether they are truly strategic. Let’s take a look at some recent activity and see if we can figure out what is going on. I personally think all of the following mergers were in the pretty strategic category. Thinking about why these deals really went down gives you a good clue of where many of these companies think the market is going so you can prepare accordingly.

AT&T buys DirectTV – If you guessed AT&T did this just so they could bash the cable companies like Rob Lowe you would not be correct. This is all about being able to deliver mobile video content. Home users are just an added benefit here.

Verizon buys AOL – If you guessed Verizon is doing this to obtain the remaining 2m+ dial-up users – congrats on knowing this many people still used AOL dial-up service but that would not be the correct answer. This is all about content driving wireless media and OTT (over the top) video. Besides the mobility play here, are their aforementioned acquisitions just strategies to get around net neutrality? Only time will tell, but it’s clear that the war to own and control your content is on!

Intel buys Altera – If you guessed Intel did this to move up in the phone book you would be wrong. This is all about Moore’s Law possibly coming to an end. Even if it is technically possibly to extend Moore’s Law it may not be financially viable to do so. In steps Altera with a loaded portfolio of intellectual property and expertise in FPGAs. This is all about Intel wanting to strengthen their technology portfolio and finding a way to increase power outside of Moore’s Law. By the way one of my favorite startups is working in this space check out – www.bitfusion.io

IBM buys Blue Box Cloud – If you guessed Big Blue likes the similarities of the name Blue Box there could be something Freudian going on there. However, IBM purchasing this company was actually about the fact that the private cloud is a critical piece of the ongoing retooling of IT infrastructure. The majority of the big players are opting for Hybrid Cloud strategies and IBM wants to play there.

Microsoft buys Revolution Analytics – If you guessed Microsoft was trying to improve their stodgy image by being attached to anything called Revolutionary that is not a bad guess. Actually, Revolution Analytics is working around the rapidly growing R language which is used by data scientists and many students working on statistical and predictive analysis. Microsoft wanted this piece to beef up their data analytics portfolio. A Big Data war is surely coming down the road and Microsoft appears to be adding to their cache of weapons.

For a number of years now, I’ve tried to make some educated, annual guesstimates on what will happen in the tech world. At the end of the year, I look back to see how I fared with my predictions. This has made for good conversation with a number of people I’ve encountered, so I look forward to your feedback this year, too.

With 2013 nearly a wrap, it’s time to revisit last years’ predictions and surprises. Let’s start with a review of stocks that were mentioned as M&A targets, plus Facebook, which I forecasted to rebound.

2013 M&A Picks with Performance Data

Closing Price

Last Trade or Price

Percentage of

Acquired

1/8/2013

12/24/2013

Change

Adtran

ADTN

No

20.72

26.38

27.32%

Brocade

BRCD

No

5.36

8.68

61.94%

Dolby Labs

DLB

No

29.67

38.57

30.00%

Facebook

FB

No

29.06

57.96

99.45%

Fortinet

FTNT

No

19.09

18.9

-1.00%

Groupon

GRPN

No

5.2

11.84

127.69%

NetApp

NTAP

No

32.5

40.38

24.25%

Palo Alto

PANW

No

47.63

56.85

19.36%

RIM

BBRY

No

11.91

7.73

-35.10%

Travel Zoo

TZOO

No

19.68

21.82

10.87%

Yahoo

YHOO

No

19.66

40.85

107.78%

Average Gain

59.07%

Highlights of 2013 – On the Money

Though none of this portfolio of particular stocks were actually acquired in 2013, they hummed along, crushing the market averages with a greater than 59% annualized return for this chosen portfolio of stocks.

Facebook mounted a huge comeback and gained back the faith of many of those whom it had disappointed in 2012.

Marissa Mayer is on a mission and did not disappoint investors as she made huge strides at Yahoo in 2013. Can she keep it up?

Smartphone cameras improved greatly and were key features in many new models.

The Blackberry phone was not a game changer and BBRY quickly popped back up as an M&A target.

Cloud War is in full progress as Amazon continues to cut prices and Wall Street seems to buy the strategy damaging many competitors in the process.

Laws—or lack thereof—slowing cloud adoption were commonplace. Imagine the even more impressive growth the cloud would have if businesses weren’t scared of compliance, case law and spying, for example.

Microsoft released their new XBOX and made some positive steps on the mobile front.

Crowdsourcing is now seen in tons of applications and has definitely hit the mainstream.

Lowlights of 2013 – Early Though Still Possible

Blackberry still didn’t get a deal done. I really thought they would seal a deal in 2013 in order to escape the drama that has so publicly haunted the company, and so they can focus on product development (even if it means killing their device business).

Apple has blown my mind by not releasing anything worth highlighting except the iPad Air and an offering of a free OS upgrade. I really thought Apple would do something noteworthy on the mobile device or television front. It seems Samsung read Job’s comments about a smart TV and took the lead on making televisions easier to control. Tim Cook keeps teasing us that there are exciting items in the funnel and that 2014 will be a big year. Let’s see if he is right.

No M&A – Not a single company in the list was taken over. The value of several of these companies was evidenced by their shares rebounding greatly, but I still believe many of them cannot continue to stand alone much longer. At this point, it may take another downturn or a technological advance to get the valuations compelling enough for a deal to happen.

What could happen in 2014? Check out my upcoming blog “2014 Themes and Forecast” and let me know where we agree or disagree.

Most of us witnessed Apple’s invasion of corporate America. A wide range of executives, power users and recent graduates have hit the work scene with their own iPhone, iPad and Macbooks or required that their companies purchase some of these items. Several well-known companies have rolled out thousands of iPads to entire divisions within their companies. Liquid Networx has observed this first hand, prompting us to reevaluate our policies and support procedures.

Let me share my own personal experience. An early adopter of the iPad and iPhone, I decided to experiment with a Mac Air last year—the hardware was just too tempting to pass up. A number of colleagues. and occasionally even customers, were asking if you could really run off a Mac for business without using a Windows Virtual Machine on the device. Excellent question. After living off of the Mac Air for about 18 months while using a range of other devices and platforms, I have advice for both Microsoft which is facing the brunt of my frustration and for Apple which is close behind.

The Now

I’ll start with the good, the bad and the ugly with Microsoft. On the pro side, from my Mac Air I’ve had zero problems sharing files with PC users utilizing recent versions of MS Office. Microsoft has made great strides in ensuring the file formats normally work without a hitch. Linking into SharePoint also works with relative ease. The only major “gotcha” (which isn’t Microsoft’s fault) is that many of the add-ons such as document management products and file comparison utilities still do not run natively on the Mac.

Now for the bad. The Mac Air menus inside Office are inconvenient and clumsy as they are non-standard with the Windows counterpart. The controls don’t match what users are accustomed to on Windows, nor do they emulate most other Mac software. Therefore you waste too much time searching for features with which you’re typically familiar. In some cases, they’re simply missing altogether.

That bring us to the ugly. The Outlook module inside Office 2011 shouldn’t be called Outlook, though it is an improvement over Entourage. When purchasing a product called Office 2011, you might imagine that the software bundled inside would be an improvement over Office 2010, regardless of the platform designation. Unfortunately, I can assure you this is not the case. Outlook 2011 looks okay at first glance, but there are a number of areas Microsoft must to address. Where to begin? For starters, the “offline” mode requires some attention as the software behaves sluggishly in this mode. Also, I’m a bit nauseated by the spinning rainbow pinwheel each time I open up contacts. When switching to this view, there is invariably a 20-30 second delay when you can do absolutely nothing but wait until the pinwheel stops its rotations and finally returns control to the user.

Cloud to the Rescue? Not quite yet

Cloud services represent another area where some of the ugliness assimilating Apple and Microsoft can be abridged. Both companies have made integration with outside cloud services far more difficult than they should be. For instance, Windows users can sync Google contacts and calendars with Outlook, but Mac users cannot. Apple is also guilty of delaying availability of iCloud to PC users. Assuming you have an Apple device, iCloud is great. But as far as I can tell, it’s worthless with any other OS or hardware. I think Apple is really missing the mark here as they made huge inroads into Windows Land when they made iTunes available for the platform. Now Apple is at a critical juncture again. I’m ready to see the company make iCloud fully available for Windows and other platforms, and perhaps have the rest of their cloud strategy become as pervasive as iTunes. Forget the enterprise the current cloud offering doesn’t even work well for consumers or the SMB.

Impact not just to Apple

With the Windows 8 launch being tepid at best (both across the desktop OS and mobile platforms), now is the time that Microsoft needs to solidify the Office franchise as the platform of choice for Enterprise class customers and the SMB. To begin with Microsoft should make Office available for the iPad. Unfortunately nobody knows if or when this might happen. Forbes recently ran the following article on why this isn’t likely to happen anytime soon. http://www.forbes.com/sites/ericsavitz/2012/02/17/microsoft-office-on-the-ipad-dont-hold-your-breath/ Which brings to mind why hasn’t Microsoft clarified its position on the iPad especially since so many of their customers now own one. While Microsoft would love everyone to buy a Windows 8 tablet the adoption rate even under the rosiest scenarios being offered is just not going to make a significant dent in the total market for tablets – at least not yet. Besides making me happy why should Microsoft do this? Microsoft’s failure to make Office work seamlessly across Apple products could open the door for even more defections to Google Apps to occur. Ensuring that the Office franchise works seamlessly with Mac and IOS is not only good for users, but to protect the franchise.

More Questions than Answers

If you were Microsoft what would you do? Will Office 2013 for the Mac will finally rival the Windows version? Who shares more of the blame for lack of compatibility and functionality? Where are both companies going over the next few years? What, if anything, will make them play nicer together? Would universal Office apps across the Apple universe and Android platforms slow the adoption of Google Apps? No matter which way you look the stakes are high and the risks are many for everyone involved. This is for sure – Microsoft/Apple dysfunction only benefits Google and could hurt both of them in the long run.

The past few years I have stuck my neck out on the line and come up with Themes and Predictions for the upcoming year. 2011 was no different as I not only hit on different technology trends I also tried to predict which companies would and would not be taken over this past year. I had a lot of fun doing this and it is almost scary how well things worked out for these selections. You can go back and read my 2011 Themes and Forecast if you like but for now take a look at the stocks I removed from the M&A possibilities list and notice that every single stock not only was not acquired but all of them except Fortinet was down on the year with the average loss being much worse than the market at -17.3%. This was a really good basket of stocks to have avoided, they were overpriced and this prediction was on the money.

Closing Price

Closing Price

Percentage of

Company

Symbol

1/4/2011

12/31/2011

Changes

Adtran

ADTN

36.28

25

-31.09%

Fortinent

FTNT

17.49

22

25.79%

Extreme

EXTR

3.21

2.8

-12.77%

Juniper

JNPR

37.16

22

-40.80%

F5

FFIV

132.07

98

-25.80%

Riverbed

RVBD

37.28

22

-40.99%

-20.94%

Of the 8 companies I mentioned that were likely to be acquired 5 had either been acquired, merged or signed agreements to be acquired before the end of 2011. One company split itself in to two pieces and I believe the other two are still in play to be acquired. If you would have purchased this basket of stocks you would have scored a 21.3% gain easily beating the market in general by a wide margin. If you could have somehow purchased shares of Skype or MySpace on the secondary market or simply avoided Sprint which was the real stinker of the group you could have done much better. Take a look at how the M&A list performed below:

Closing Price

Last Trade or Price

Percentage of

Acquired

1/4/2011

12/31/2011

Change

XO

XO

Yes

0.69

1.4

102.90%

Global Crossing

GLBC

Yes

13.01

22.38

72.02%

Sprint

S

no

4.45

2.25

-49.44%

Blue Coat Systems

BCSI

Yes

30.24

26

-14.02%

Tekelec

TKLC

no

11.8

11

-6.78%

NTELOS

*

Company Split in to two pieces for modest gain

Skype

Yes

Privately Held – Investors made large gain

My Space

Yes

Company after floudering moved into passionate hands

20.94%

So to recap the highlights of last year’s forecasts M&A was definitely hot in 2011, the economy muddled along with uncertainty being a dominant theme, Apple did obtain the largest cap in the world shortly before the passing of Steve Jobs, smart phones and tablets continued to invade corporations at a rapid pace and Microsoft got it right with Lync being a breakout product for them.

So what about 2012? Here we go beginning with M&A.

1) M&A – I think M&A will cool down some after the blistering pace of 2011. Most likely we will see smaller deals done as tuck-ins to round out the portfolios of larger entities. The market is definitely ripe for IT service provider consolidation, security related entities, wireless players and for some more strategic cloud acquisitions where I expect the carriers to be active.

IDCC – If you haven’t heard of InterDigital before don’t feel bad as they are not a household name, however, many of the brands you know and love have to utilize their patents. With so many companies being taken off the board in 2011 including the acquisition of Motorola by Google the InterDigital wireless portfolio looks might impressive and the stock is trading just a little above its lows for the year.

NOK – See a pattern beginning to emerge here? Here is another undervalued wireless play. This is also a major partner of Microsoft trying to compete with the market leaders Apple and Google. This stock is trading close to or slightly below book value. I think this stock could head lower first since Lumia has not done well but keep an eye on them.

RIMM – I will not stoop to insulting die hard Blackberry users as I still have one or two friends that love them. The problem for RIM is that one or two die hard customers here or there is not going to help them recover quickly enough. But there is some good news. Even though Apple and Google have been declared winners of the smartphone wars this will not stop Microsoft and others from continuing to try. The market is just too big for them to walk away from. Just look at HP’s ill-advised purchase of Palm not so long ago. Sooner or later Microsoft, HP, Oracle, IBM, Amazon, Dell or someone else will decide that the market is just too big not to have a player in the game and with the market cap getting smaller by the day and no debt there is a good possibility that someone finally makes a play for the company this year.

Here are a few more names that have good potential to be taken over in 2012: InterNAP, Netflix, Sprint, Riverbed, Zix and Tekelec.

2) Dot Com Implosion 2.0? – Though having real products, many of the Web 2.0 companies we know, love and hate have seen stratospheric growth and valuations. While these are real companies unlike what we saw 10 years ago we now have some very big expectations to fill. There are a number of high profile companies readying to come public and one has to wonder if the valuations that are being thrown around are realistic. Just looking at the performance of recent IPOs in this space has to make one cautious at this point. Perhaps the Facebook IPO will tell the story.

3) Voice Recognition goes Mainstream – I know you have already heard more than enough about Siri but the bottom line is that everyone has been playing with this technology for years. Microsoft has made huge investment along with a number of other companies and yet none of them has had the success that Apple has in such a short time. This consumer driven technology will now find its way through every business.

4) Windows 8 – Given that enterprises are still upgrading to Windows 7 the biggest impact of Windows 8 may be on either side of the desktop.

Since it will enable PCs and Tablets to turn on instantly and potentially run all day, finally the Mac Air will have some legitimate competition. I have also heard developer chatter about a number of Windows 8 powered tablets that have the power of a PC inside enabling a much wider range of applications than current tablets. Look for Windows 8 to drive Ultrabook and sophisticated tablet sales.

The Server side of the house will also benefit as Microsoft is boasting a greatly upgraded hypervisor. While Hyper V3 will probably not match everything vmWare can do it should pressure pricing and provide end-users with more options.

5) iTV – When was the last time you were really excited about a television? I think there are legs to the iTV story in 2012. Just look at Jobs own words on this the television experience as penned by Walter Isaacson in his biography of Steve Jobs. Here’s what Jobs said: “I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it.” I am willing to believe he cracked it and that the first product ships before year-end.

6) M2M – While Machine 2 Machine (M2M) potential has been discussed for some time we are finally seeing a number of products begin to enter the market and fill a niche. Even more interesting is that these offerings are beginning to be integrated with other multi-function devices meaning that this technology is about ready to go mainstream. Look for a wide variety of products to deliver additional value to businesses across the marketplace but beginning with verticals.

7) Smart Wallet – Mobile enabled payment solutions definitely have interest. With both Android and iOS devices expected to come with Near Field Communications (NFC) chips built-in we could this technology gain momentum in the US very shortly.

8) HTML 5 – With Flash biting the dust there will be a mad rush to HTML 5. This will make many websites much more friendly to end-users. The prediction is that the HTML 5 will cut down on the need to design customer downloadable apps. This could make it easier for enterprises to deploy solutions but I don’t see the app store going away anytime soon. There is too much profit motive and the benefit of control for it to disappear.

9) Education – Will be greatly impacted by the tablet explosion – look no further than our local librarians giving lessons on how to utilize your tablet with the public library system. Even more amazing than the technology itself is the incredible amount of talent that can be pooled and captured on a single platform to make learning easier. If you haven’t watched a Khan Academy lesson with your children or for your own benefit you just don’t know what you are missing. http://www.khanacademy.org/ – They have topics on anything you could imagine including math, science, history and art with more lessons being added all of the time.

10) Security – 2011 got us talking about custom malware attacks that seemed almost like something out of a spy thriller. Expect even more custom attempts in 2012. PII also will gain increased visibility as states, companies and consumers all become more concerned.

Last year I stuck my neck out with “10 Themes and Predictions for 2010” and got quite a few things right. I did fall short in two areas, though, as I thought we would see substantial new taxes on telecom to assist with huge deficits (it hasn’t happened in the U.S. yet, but notice they are at least discussing this measure overseas: http://www.cn-c114.net/575/a550527.html ). I also thought we would see a number of tech mergers, and though I was on the money that this would occur, not one of my candidates was acquired. I would like to point out that I wasn’t totally wrong about the companies I mentioned; every one of them was undervalued, and though no other company decided to gobble them up, investors sure did. I bet there are more than a few companies who would have liked to acquire one of these, but now the valuations make it much harder so I’m removing most of them from the likely-to-be-taken-over list. They are no longer undervalued, in my opinion.

Closing Price

Closing Price

Percentage of

Company

Symbol

1/4/2010

12/31/2010

Increase

Adtran

ADTN

$22.70

$36.21

59.52%

Fortinet

FTNT

$18.00

$32.35

79.72%

Extreme

EXTR

$2.90

$3.09

6.55%

Juniper

JNPR

$27.18

$36.92

35.84%

F5

FFIV

$53.98

$130.16

141.13%

Riverbed

RVBD

$23.85

$35.17

47.46%

Average Return

61.70%

This year I will stick my neck out a bit further and get a little more specific with some additional themes and predictions. I look forward to your feedback.

1) M&A Continues – Though I mentioned this last year, there are still some really interesting pieces on the board throughout technology in general and in the telecom space. Most of the companies mentioned below will, in my opinion, either need to acquire someone or be acquired to stay viable.

XO – Icahn tried to take it private a while back and does have majority control. They have some nice assets especially in some of their fiber-rich markets. The question is what does Icahn want to do with this?

Global Crossing – Some of the best international assets and routes are held inside this company. Keep in mind they have had a ton of financial issues in the past but have had the benefit of bankruptcy to clean some of this up. On the downside, this company is still losing money and sports a negative book value. Global Crossing would be a great asset for a number of companies trying to move upstream in the Global Enterprise space.

Sprint – After completing what is perhaps one of the worst mergers of all time, the acquisition of Nextel wiped out billions of dollars of equity, added to debt, brought on a string of losses, caused additional customer support problems, destroyed employee morale, diverted investment from other key aspects of their business, and I could go on. However, you can see that there are improvements being made and even with the $15 billion in debt (if you subtract cash on the books) this company still trades at less than book value. Given that they are one of the major wireless players, would it really be surprising for the company to be reunited with Embarq at CenturyLink at some point or perhaps acquired by Google (which has been floated a couple of times)?

Here are a few more names that I think are likely plays due to growth in the cloud, fiber assets or just ripe for consolidation: Blue Coat Systems, Tekelec, NTELOS, Skype and MySpace.

2) Continued Uncertainty – As the recession rolls on (or at least its close cousin, the jobless recovery), it will begin to alter purchasing and business decisions differently even than previous years. Companies will begin taking gambles they would not have even considered three to five years ago. As companies are already operating very lean due to the recession, IT and other leadership will be pressed to continue to find ways to cut cost. This will lead to opportunity for some but also cause many businesses to make risky choices that may not have been thoroughly vetted.

3) Microsoft Goes Three for Four – After scoring hits with Kinect and Windows 7 in 2010, Microsoft finally makes inroads on the Telecom side. Though Windows 7 Mobile may be a bust, some studies have shown that up to 30 percent of Enterprises plan to deploy Lync server in some form or fashion. There are still issues to be addressed but Microsoft appears to have finally gotten many things right.

Virtualization supported in Lync Server

Requires fewer physical servers (many configurations will need only one server compared to four in OCS 2007)

4) Smartphones and Tablets Outsell Notebooks and Desktops – This isn’t the demise of the desktop as we happen to be in a major upgrade cycle due to Windows 7. However, phone upgrades are happening at a much more rapid pace than desktops and laptop replacements. Pricing and ease of use makes smartphones and tablets available to a huge audience. Almost every manufacturer has added some form of a smartphone to their line ups and there are very few plain phones left that can even be purchased today. In talking with several customers, I have noted that many executives are planning to purchase large numbers of tablets for their organizations in 2011. This makes me believe that we will see a slew of mobile computing applications for business on tablets by the end of 2011. I don’t think there is any doubt why RIM and others are rushing to get their tablets out. The question is whether they are too late with Apple already having first-mover advantage.

5) Security – Security will continue to be move up the IT agenda as general socioeconomic strains expose additional needs and requirements. Mobile security breaches and management will become a major focus.

6) Compliance – Look for compliance and standards to be a major cloud driver in 2011. Many players are working as hard as they can to achieve multiple levels as quickly as possible.

7) New addictions and ailments will be linked to high social media and mobile device usage.

8) Apple obtains largest market cap of any company in the world during 2011. How does this happen, even with Exxon potentially having much higher oil as a tailwind? We’ll see iPad momentum with new models, Verizon and potentially other carriers get the iPhone soon, a continued Mac-Halo Effect and the sleek Mac Air. You never can discount what Apple might have coming down the pipeline. Even from a valuation standpoint, when you subtract Apple’s cash from the stock price, you get a very low PEG ratio.

9) Mobile Photo Sharing – Social media photo sharing gains momentum in 2011 with almost every device coming with a camera. Timing couldn’t be better for applications like Instagram http://instagr.am/.

10) Crowdsourcing – Continues and gains major momentum crimping traditional agencies and attracting considerable talent from a large talent pool of disenchanted and displaced workers.

Let me know what think will happen in 2011 or if there are any additional technologies that are especially interesting.

In the interest of full disclosure, I do own shares in some of the companies mentioned in this BLOG.

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